Zhejiang Wellsun Intelligent TechnologyLtd (SZSE:300882) Is Reinvesting To Multiply In Value

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Zhejiang Wellsun Intelligent TechnologyLtd's (SZSE:300882) trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Zhejiang Wellsun Intelligent TechnologyLtd is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.23 = CN¥260m ÷ (CN¥1.5b - CN¥426m) (Based on the trailing twelve months to September 2023).

Thus, Zhejiang Wellsun Intelligent TechnologyLtd has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 5.2% earned by companies in a similar industry.

Check out our latest analysis for Zhejiang Wellsun Intelligent TechnologyLtd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Zhejiang Wellsun Intelligent TechnologyLtd's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Zhejiang Wellsun Intelligent TechnologyLtd.

How Are Returns Trending?

Zhejiang Wellsun Intelligent TechnologyLtd deserves to be commended in regards to it's returns. The company has employed 275% more capital in the last five years, and the returns on that capital have remained stable at 23%. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. You'll see this when looking at well operated businesses or favorable business models.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 28% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Key Takeaway

Zhejiang Wellsun Intelligent TechnologyLtd has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. However, over the last three years, the stock has only delivered a 11% return to shareholders who held over that period. That's why it could be worth your time looking into this stock further to discover if it has more traits of a multi-bagger.

If you'd like to know about the risks facing Zhejiang Wellsun Intelligent TechnologyLtd, we've discovered 1 warning sign that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.